Piece written by Mfanafuthi Mhlongo, Trive Financial Market Analyst
The Euro has been under pressure in recent weeks, helping the price action close two consecutive weeks on the red and leading the currency pair to a fresh four-week low influenced by a resurgent US dollar. Fitch’s downgrade of the US credit rating to AA+ from AAA heightened risk aversion driving demand for the US dollar. This strengthening of the greenback was also due to reports that showed the resilience of the US economy, including the report which showed low levels of initial jobless claims and much stronger than expected ADP employment data, suggesting resilience in the job market ahead of the NFP report due later on Friday.
In Europe, the economy has shown some signs of weakness, but it is still growing. European PMIs unveiled a services sector slowdown and deeper manufacturing contraction. Despite this, Euro Area GDP surged, expanding by an unexpected 0.3% in Q2, surpassing the projected 0.2%. Preliminary CPI data revealed headline inflation dipping to 5.3%, a low since January 2022. Core inflation remained resilient at 5.5%, well above the ECB’s 2% target. Following a recent 25bps rate hike, ECB President Lagarde hinted at the potential for further tightening or a pause in September amidst complex economic crosscurrents.
The market now shifts its focus to the US for the NFP report, which could have a significant impact on the cross in the upcoming sessions.
Technical
The 4H chart shows that the market is consolidating around the daily pivot point following the bulls’ attempt to break above the descending channel trading pattern formed since the price action faltered at a 17-month reached in July 2023, ahead of the NFP data due on Friday.
Therefore, hotter-than-expected jobs data could strengthen the US dollar and preserve the apparent bearish momentum in the upcoming session, likely offering short-term trading opportunities towards the 1.09106 support level and 1.08675 next. However, lower-than-expected job numbers would likely weigh on the greenback in the short term, probably bringing the 1.10088 and 61.80% Fibonacci retracement level at 1.10582 into play.
Summary
Overall, the pair is currently under pressure in the near term heading into the NFP report, with the 1.09106 and 1.08675 likely to act as a level of interest should the report favour the strengthening of the greenback.
However, lower-than-expected jobs figures would leave the 1.10088 and 1.10582 resistance levels as levels of significance as the price action moves higher.
Sources: TradingView, Reuters, Seeking Alpha, Trading Economics.
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